Merchant Account Fees
Getting a merchant account is very easy - understanding it is a different story. There can be a lot of different fees associated with a merchant account*:
- Discount rate (Visa / MasterCard): usually 2.39%
- Transaction Rate (usually $.25-.30 per transaction)
- Batch Fee(usually $.25-.30 per batch)
- Address Verification Service (AVS) (usually $.05 per transaction)
- Electronic Gateway Fee ($10-$30 monthly)
- Statement Fee ($0 - $20)
- Customer Service Fee ($0 - $20)
- Monthly Minimum ($0-$50 – for example, if your discount rate is 2.5% and you sell $1,000 that month, your charge is $25.00. If you monthly minimum is $25.00, you have met that requirement, and should not be responsible for that amount)
- Application Fee ($0-$1,000)
- Merchant Account Set-Up Fee ($0-$1,000)
- Electronic Payment Gateway Set-Up Fee ($0-$1,000)
- Membership or Annual Fee ($0-$1,000)
- Virtual Terminal ($0-$25 monthly)
As you can see, there can be a lot of charges. The two basic components of an internet merchant account are a credit card processor and an electronic payment gateway. The electronic payment gateway is similar to the point-of-sale (POS) terminal in the grocery store. The main U.S. gateways are LinkPoint, Authorizenet.com, and Verisign. All three of these companies cannot process credit cards without the aid of a credit card processor.
A few things to ask a merchant account provider: Do they provider 24 hour customer support? What are the charges of a transaction and monthly charges?
Whatever they tell you on the charges - when you sign the contract, make sure that those charges are spelled out on the contract. This is what matters. Also read the print to see how long the contract is good for. They are either usually 6 months, 12 months, 24 months, or 36 months. Twelve months might be a good start because if Visa / MasterCard decide to raise the interchange rates, your rate will be guaranteed for the amount of that contract. Usually once the contract has expired, it will be month-to-month.
Do your due diligence. Let's say you sign up with a 2.39% discount rate, $.25 transaction fee / batch fee, $.05 AVS, $15.00 monthly electronic gateway fee, and $10 customer service fee. With the above contract, let’s say you have 40 transactions at $100.00. So the transaction fee / AVS is going to be a total of $12.00 ($10.00 / $2.00 respectively). And your discount rate charge is going to be about $95.60. Now let's say that you have nightly batches & it is only Monday-Friday. And four weeks - so that is 20 days - so that should be about $5.00. So right now, your total is $137.60 for the $4,000 in sales, which is about 3.4%. If you were processing thru 2CO, this would be 5.95%. Third party processing has some advantages over a merchant account. A comparison of third party processing and your own merchant account will be out soon. But if you are only processing about $500 a month with a merchant account, you would be looking at about 11% or more.
*All rates are for United States residents.
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